Dan Roberts from The Financial Times ran an article earlier this week on "McKinsey warns on guidance" (subscription required) that began with:

McKinsey is leading a growing backlash against companies providing guidance on earnings, after concluding the quarterly ritual increases share price volatility and short-termist management.

The article later goes on to observe:

Tim Koller, a partner in McKinsey's New York office, said: "Because guidance creates short term trading opportunities, it increases rather than decreases volatility. Certain types of hedge funds like it, but then there are some hedge funds who cannot tell you what the company makes."

Nevertheless, many companies are reluctant to stop the practice, especially when slowing earnings growth means some will be accused of trying to hide bad news.

McKinsey says better ways of providing transparency for investors are by focusing on disclosure about business fundamentals and long-range goals.

McKinsey’s research reminds me of a long standing pet peeve. I cannot tell you how many CEOs have complained to me about the short-term horizon of the stock market in valuing their stock. From the perspective of these CEOs, investors are to blame: “Why can’t they take a longer term view, instead of hammering us on short-term performance results?”

At one level, I am very sympathetic with this. Public markets, especially in the US, do tend to put undue emphasis on short-term performance. But who’s to blame for this?

Ask these same CEOs and their management teams two simple questions:

What will your relevant markets look like five to ten years from now?

What will your company need to do in order to thrive in these markets five to ten years from now?

Almost always, the answer will come back that there’s just too much uncertainty to have a clear point of view on this. But, here’s the rub: If the senior management team of acompany doesn’t have a clear point of view on where the company is headed, why should investors put a lot of faith in the long-term performance of the company? In the absence of a clear and compelling long-term perspective, investors naturally fall back on short-term results.

Now, if you probe more deeply, each executive on the management team has a set of assumptions about the long-term direction of the business. The problem is, they rarely articulate these assumptions and they even more rarely engage in an explicit and systematic discussion with the rest of the management team to test and challenge each other's assumptions. As a result, there is often significant divergence within the management team regarding the long-term requirements for success.

I advise these CEOs to reflect on what investors would need in order to focus on long-term performance. They should then reassess their own practices to determine what they could do to shape the horizons of their investors.

Some investors like day traders and certain hedge funds are unlikely to ever take a long-term point of view. Part of the challenge for CEOs is to attract and retain investors with a longer-term investment horizon.

But to do that, they need to have a compelling long-term narrative about their business that goes beyond generalities and platitudes. For the narrative to be compelling, it must be more than a “story” – it needs to be based on a deeply held point of view shared by the entire management team. Also, the actions taken by the company need to be completely consistent with the narrative. The entire senior management team ought to reinforce continually that narrative in their public pronouncements and help investors to understand the performance benchmarks that will indicate whether the company is on course to exploit these longer-term opportunities. They certainly should not be catering to short-term horizons with quarterly earnings forecasts.

Once again, I didn’t make it to eTech because of client commitments even though the theme for the conference – “The Attention Economy” – is a subject near and dear to my heart.

One of the debates emerging from the conference was spurred by someone not at the podium, but in the audience – Doc Searls – in a piece he wrote for the Linux Journal on “The Intention Economy”. Doc is skeptical about all this focus on attention:

Is “The Attention Economy” just another way for advertisers to skewer eyeballs? And why build an economy around Attention, when Intention is where the money comes from?”

Doc emphasizes intention because, to him, the real value is that buyers

. . . are ready-made. You don’t need advertising to make them. The Intention Economy is about markets, not marketing. You don’t need marketing to make Intention Markets.

Now, this begins to sound like a very narrow view of markets, but Doc is quick to add:

The Intention Economy is built around more than transactions. Conversations matter. So do relationships. So do reputation, authority and respect. Those virtues, however, are earned by sellers (as well as buyers) and not just “branded” by sellers on the minds of buyers like the symbols of ranchers burned on the hides of cattle.”

Doc makes a lot of good points – in particular, his notion that “The Intention Economy is about buyers finding sellers, not sellers finding (or “capturing”) buyers.” Maybe the reason I like that notion so much is that it maps to my concept of reverse markets introduced in my book Net Worth, written seven years ago:

In contrast to conventional markets, in which vendors seek out and often have the upper hand over customers, customers seeking out and extracting value from vendors characterize reverse markets.

Along with my co-author, Marc Singer, I mapped out in Net Worth the concept of “infomediaries”, representing a new kind of business model to accelerate the transition from conventional markets to reverse markets: These infomediaries would act as personal agents on behalf of customers to help them find resources of value and to extract more value from vendors. For a variety of reasons, the infomediary business model has not yet taken off, but I continue to believe there is a significant economic opportunity waiting to be captured by businesses that cross the table and explicitly take the side of the customer, rather than helping vendors to find or “capture” buyers.

While I like many of the points made by Doc, The Intention Economy is still much too narrow a view of the opportunity. By focusing on intention to buy, we ignore the whole question of how intentions emerge in the first place. In a world of exploding options and scarce attention, how do we find resources (products, ideas, people, etc.) we weren’t even looking for? One option is that we wait for vendors to find us and “capture” us. The other option is to rely on friends or agents who know us and can be trusted to be helpful in introducing us to new resources we weren’t even aware of.

Given this, The Attention Economy is a richer way of describing both the challenges and the opportunities from a customer’s perspective. Yes, it is true, many vendors and start-ups have grabbed on to The Attention Economy to figure out clever ways to find those increasingly elusive eyeballs.

But The Attention Economy focuses on the key bottleneck of scarce attention. Vendors may try to hijack the meme, but it underscores the inescapable fact that this bottleneck is shifting power rapidly away from vendors to customers. It also highlights the key challenge for customers - how to increase their return on attention so that they get as much value as possible out of that scarce resource.

Part of that return certainly comes from enhanced convenience and value in finding the best vendor once the customer has formed an intention to buy. But a lot more of the value comes from discovering things we weren’t even aware of – this is the real opportunity created by the Internet. It eliminates shelf-space constraints and literally makes anything in the world accessible to us.

To use Doc’s example, he knows about the ski slopes in Park City and has an intention to rent a car to get there, but how does he find out about a ski slope in Chile that offers an even better skiing experience given his particular skills and interest?

Some of that opportunity can be captured through individual surfing and serendipity. Part of it can be realized through friends and various forms of social software that expose customers to the interests and preferences of a much broader range of people. But I continue to believe that much of the opportunity will depend on trusted agents acting on behalf of the customer. While software and technology can amplify reach and capabilities, there is still an opportunity for businesses built around human beings to harness the power of these tools in delivering agent-based services to customers.

The real winners in The Attention Economy will be those who can help expand our horizons by sorting through the growing array of options and introducing us to resources that matter based on a deep understanding of our interests and needs, rather than narrowly fulfilling our current intentions. Think of trusted advisors rather than transaction facilitators.

In the end, I was struck by what a vendor centric view Doc takes in his opening paragraph cited above. Yes, Intention is where the near-term money comes from. But Attention is where the long-term value to the customer resides.

Manjeet Kripalani has an interesting article on "Offshoring: Spreading the Gospel" (requires registration) in the latest issue of Business Week. She zeroes in on an interesting pattern: the growing number of GE and McKinsey alumni that are running offshore outsourcing businesses:

While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. "Every time we have an outsourcing forum, it's like a GE and McKinsey alumni association meeting," says Sunil Mehta, vice-president of NASSCOM, India's software industry association.

Manjeet attributes this to many factors:

Insiders and outsiders say the two are unique in their scale, their ability to attract top performers, their comfort with multiple cultures and languages, and their commitment to outsourcing. Both also view outsourcing more as a tool to increase growth and boost efficiency than as a pure cost savings exercise, a strategic insight most other corporations are only starting to grasp.

All of these are certainly relevant factors, but the one element that really stands out is the fact that these two firms, more than any others, have established a global leadership in attracting, developing and retaining top talent. It is no accident that these two firms are contributing more than their fair share of leadership of offshore outsourcing businesses. As the offshore outsourcing business evolves from wage arbitrage to skill building arbitrage, the alumni of these two firms have a natural advantage in terms of deep experience on talent development.

Now, that’s the good news. The bad news is that executives from these two firms are likely to have a blind spot. This blind spot is likely to reinforce a blind spot that already exists among many offshore outsourcing firms, especially in India.

McKinsey has minimal experience in outsourcing of its own operations, especially when it comes to its core processes. It will locate its operations flexibly around the globe to tap into local talent pools, but these are all captive facilities with staff employed directly by McKinsey. Although there are definitely signs of change on the horizon, the mindset and instinct of most McKinsey leaders in dealing with their own firm is to bring talent inside rather than developing broader relationships with talent outside.

GE is somewhat better on this score since it has been more active in outsourcing in a variety of its businesses. Until recently (especially with the spin-off of Genpact two years ago), though, GE’s instinct was to offshore operations to captive facilities, rather than going one step beyond to outsourcing. And when it comes to outsourcing, GE’s experience tends to be with “first generation” outsourcing – one to one relationships with broad-based outsourcers.

As offshore outsourcing moves to a greater focus on skill building arbitrage, we are seeing a corresponding shift to “second generation” outsourcing. This form of outsourcing involves networks of companies coming together under the leadership of an orchestrator who can bring together the appropriate specialized talent to serve a specific client’s needs. GE has very little experience with this new outsourcing model. Similarly, all the major Indian offshore outsourcing firms still tend to be focused on “first generation” outsourcing.

This will be the challenge for both GE and McKinsey alumni running offshore outsourcing operations. They certainly understand the need to attract, develop and retain talent within their own enterprises. But will they also understand that capability building can occur much more quickly in global process network (pdf file)of highly specialized companies coming together to serve the needs of other companies?

This is an example where a strength can also become a weakness. By focusing so much on internal talent development, will they also ignore the growing opportunities to get better faster by working within large networks of highly specialized business partners? The management techniques to do this are being pioneered largely by Chinese offshore outsourcing companies. To my knowledge, there are no GE or McKinsey alumni running these companies.